United States: America On Opioids

As the Epidemic Continues, the Legal Landscape for
Manufacturers and Distributors Unfolds

Ninety-one Americans will die today from an opioid overdose.
This is the same number who died from opioids yesterday, and who
will die tomorrow and every day in 2017, according to the Centers
for Disease Control and Prevention.

It is widely acknowledged that opioid abuse is the worst drug
crisis in American history. In 2015, more than 33,000 people died
from opioid overdoses. This number has quadrupled since 1999, as
has the number of prescription opioids sold in the United States.
The epidemic has led to astronomical economic costs, with recent
estimates of the total cost of the opioid crisis at $78.5 billion
so far. This includes costs related to health care, substance abuse
treatment, lost productivity, and criminal justice expenses.

Although West Virginia has been called "ground zero"
for the devastation of opioid abuse, this national epidemic is
certainly not limited to one state. Recent lawsuits have been filed
in Illinois, California, Ohio, New York, Kentucky, the Cherokee
Nation in Oklahoma, and Washington State.

The attorneys fueling these claims crisscross the country,
meeting with attorneys general and seeking an exponential increase
in the number of cases currently pending. Apart from the altruistic
motives, there is a financial incentive for doing this. In December
2015, a suit in a remote Kentucky courthouse against opioid
industry powerhouse Purdue Pharma settled for $24 million. More
recently, suits against opioid distributors in West Virginia have
reaped over $40 million in settlements.

So, who is being sued? For what? And is any of this insured?

Two decades ago, Purdue Pharma launched the opioid OxyContin,
promising sustained pain relief for 12 hours. OxyContin generated
$31 billion and sprouted an industry of potent painkillers.
However, it became evident that these painkillers did not last as
long as advertised. This resulted in excruciating symptoms of
withdrawal, thereby causing some doctors and manufacturers to
resort to higher dosages, driving patients either deeper into the
clutches of prescription opioid addiction via Vicodin and Percocet,
or toward the readily available and illegal cousin, heroin.

Savvy litigators tore a page straight from the tobacco
litigation playbook and went to work. They discovered that, just
maybe, the opioid manufacturers knew of the treacherously addictive
qualities of their drugs, the agony suffered between doses, and the
over-prescription for inappropriate maladies. And so the lawsuits
began to target the manufacturers, and have since spread right down
the distribution line.

CLAIMS AGAINST MANUFACTURERS

In June 2014, Chicago and California filed similar lawsuits
against manufacturers, including Purdue Pharma, Teva
Pharmaceuticals, and Actavis. The suits allege that the
manufacturers fraudulently marketed opioids to convince doctors and
patients that opioids are safe for long-term use while failing to
disclose risks such as addiction, overdose, and death. Chicago and
California each seek payment of restitution, civil penalties,
treble damages, and attorneys' fees. As of June 2017, the
Chicago suit is in the midst of discovery and the California suit
is awaiting the filing of an amended complaint, with three
defendants having recently settled for $1.6 million.

On Dec. 15, 2015, Mississippi filed a similar manufacturer
lawsuit alleging that, since the 1990s, pharmaceutical companies
engaged in a common scheme to deceptively market the risks,
benefits, and superiority of opioids to treat chronic pain.
Mississippi allegedly has spent more than $5.6 million on opioid
products through its Medicaid program and over $141 million in
addiction treatment. As of June 2017, the case is proceeding into
discovery.

Most recently, on May 31, 2017, Ohio's attorney general sued
manufacturers, alleging that they have contributed to the opioid
epidemic by falsely promoting drugs like OxyContin and Percocet as
safe and non-addictive. Ohio alleges that it is "awash in
opioids and engulfed in a public health crisis the likes of which
[has] never been seen before."

The complaint alleges that in 2016, roughly 20 percent of the
state's population was prescribed an opioid drug, and that the
Ohio Department of Medicaid has spent $175 million on the
defendants' opioid products.

CLAIMS AGAINST DISTRIBUTORS

After opioids are manufactured, they are purchased and resold by
distributors. West Virginia opened this litigation door by filing
suits against the three largest wholesalers: AmerisourceBergen Drug
Corporation, Cardinal Health, and McKesson Corporation. West
Virginia's suit alleged that its costs for the opioid epidemic
were "as much as $430 million in the year 2010, with costs
projected to be as much as $695 million annually by 2017."

West Virginia alleged that the distributors failed to maintain
controls and procedures to prevent theft and diversion of
controlled substances and to report suspicious orders, as legally
required. Each distributor has since been sued in over 15
"copycat" lawsuits by West Virginia municipalities that
are lining up, hat in hand. These suits also name smaller
distributors such as H.D. Smith and Anda Inc.

On April 25, 2017, the Cherokee Nation sued the same opioid
distributors for damages involving 177,000 Cherokee Nation citizens
spanning 14 counties in northeast Oklahoma. The case is premised
upon Article 13 of the 1866 Treaty of Washington between the United
States and the Cherokee Nation, which grants tribal courts
jurisdiction over claims arising in tribal territories. The tribe
seeks up to $10,000 per violation for the defendants' failure
to implement effective controls against diversion of the addictive
opioids they supplied.

CLAIMS AGAINST PHARMACIES

Some pharmacies have been labeled as "pill mills,"
typically in rural or low-population areas where the amounts of
controlled substances sold are much greater than a population of
that size typically would warrant. The attorney general of West
Virginia has filed lawsuits against three such pharmacies, alleging
that each failed to identify suspicious prescriptions or recognize
when its prescriptions reached an outrageously inflated volume. For
example, it is alleged that from 2006 to 2016, Larry's Drive-In
Pharmacy distributed over 7.7 million doses of hydrocodone in a
county that has fewer than 25,000 residents.

One pharmacy suit has already been before the West Virginia
Supreme Court of Appeals to determine whether the drug users
themselves can shift blame and compensation onto the pharmacies. In
Tug Valley Pharmacy v. All Plaintiffs, the court ruled
that substance abusers could pursue compensation from those who
prescribed the medications even though the abusers engaged in a
series of illegal activities such as lying to physicians and
"doctor shopping." The May 2015 ruling rejected the
"wrongful conduct rule" that would have precluded the
individuals from bringing claims arising from their own illegal
activities. The court concluded that it would be for juries to
allocate liability among those who used the drugs and those who
supplied them.

COVERAGE ISSUES

A handful of litigated coverage disputes have so far involved
two discrete questions:

Do insurers have to defend claims
when there is no specific compensation sought for bodily injury to
specific individuals?

Does the alleged violation of
business practice statutes constitute an occurrence?

In July 2014, the Western District of Kentucky in Cincinnati
Ins. Co. v. Richie Enterprises found that if a policy states
that it only covers suits seeking damages "because of bodily
injury," then such a policy has no obligation to defend
against West Virginia's distributor suit. The court reasoned
that West Virginia's claims against the distributors do not
really seek damages "because of bodily injury." Instead,
West Virginia was seeking reimbursement for public expenditures due
to the defendants' distribution of drugs in excess of
legitimate medical need, and this is not the same as paying
compensation "because of bodily injury."

A contrary decision came in July 2016 from the 7th Circuit Court
of Appeals, in Cincinnati Ins. Co. v. H.D. Smith. The
court held that it does not matter if West Virginia is seeking
recovery of amounts paid to compensate the injured drug users
themselves or, alternatively, reimbursement for expenses incurred
by the state. The court concluded that West Virginia's effort
to recover its health care expenditures is no different than a
mother's lawsuit to recover her money spent to care for her
injured son. Both payments, the court determined, implicate bodily
injury coverage since the payments were "because of bodily
injury," thereby requiring the insurer to defend.

In a third opioid coverage case, the District Court for the
Southern District of Florida examined the difference between a
policy providing coverage "for bodily injury" as opposed
to "because of bodily injury." In a March 2016 ruling in
Travelers v. Anda Inc., the court concluded that an
insurer does not have a duty to defend West Virginia's
distributor lawsuit because West Virginia's alleged damages
were for its own economic loss, rather than "for [the] bodily
injury" of its residents. This ruling may dictate that
policies providing coverage "for bodily injury" can
escape claims for reimbursement of public health expenditures,
which may not be the case for policies covering damages
"because of bodily injuries." The decision was affirmed
on Aug. 26, 2016.

The Chicago and California manufacturer lawsuits are subjects of
one combined coverage action filed by Travelers against Actavis in
California state court. On April 11, 2016, the trial court ruled
that Travelers has no duty to defend because the underlying
lawsuits against the manufacturers do not allege an occurrence, as
the marketing scheme alleged does not constitute an accident.
Actavis filed an appeal of the court's ruling, arguing that
Actavis' alleged conduct could indeed constitute an occurrence
because Actavis did not intend the harm caused by its marketing
scheme (even if the scheme itself was intentional). The briefing on
this case was completed on Jan. 23, 2017, and is awaiting a date
for oral argument.

A new distributor coverage action got underway on March 16,
2017, in which AmerisourceBergen filed a coverage suit in West
Virginia against four of its insurers, seeking insurance for its
$16 million settlement of the West Virginia distributor suit
against it, as well as coverage for the many copycat claims that
have been filed by county and local municipalities.

New coverage suits will bring new coverage issues. For example,
in 2007, $160 million in fines was paid by opioid manufacturers to
reimburse the federal government and states for damages suffered by
Medicaid programs due to the improper promotion of OxyContin. This
early knowledge that something was amiss in the world of
prescription opioids will lead to coverage questions involving
prior knowledge, and the extent to which those in the distribution
chain were aware that the damage had begun "in whole or in
part" prior to the years 2007 to 2016 that are so often now at
issue.

Other inevitable questions will include if those in the
distribution line were misreporting the amounts of narcotics sold,
then were they also misreporting these issues on their insurance
applications? Might this be a material issue leading to claims for
policy rescission?

The insurance industry will also have to answer the time-honored
question of how many occurrences exist for these claims. If the
municipalities recover damages or fines on a per-dose basis, then
why shouldn't each dose constitute a separate occurrence,
perhaps triggering a separate retention? Or maybe the separate
occurrence is each prescription filled, or maybe each person
receiving a prescription is a separate occurrence.

With opioids, the culpability of the injured party raises
questions about whether high compensatory awards will be the norm.
This may be less significant if municipalities can recover
expenditures paid for generalized harm to the public as opposed to
individual people. Whether generalized harm to the public is an
insurable risk is questionable, as is whether such damages can be
covered if the public impact of the opioids was indeed the result
of an intentional plan by those distributing the product.

The pervasiveness and staying power of opioid litigation may
turn on the extent to which insurance coverage is available to fund
such suits. For now, it is undeniable that the worst drug crisis in
American history is here. It arises from legal drugs, and from
legal distributors that all have their own insurance. The solutions
and funding mechanisms to address these issues will be inextricably
intertwined with insurance coverage for the foreseeable future.

Originally published by CLM Magazine, August 2017.

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